Renting Out Your Home in the Tropics

Have you been thinking about buying a property for investment? Or maybe you just want your own tropical paradise?

Before you do, read this; it could change the way you think and make your life much easier down the road. It starts with how Airbnb and social media have changed the entire real estate market in the Latin Tropics.

Most of the people I know who are considering an investment in real estate down here are at least considering renting the home out when they are not using it. While others are planning on rental income to support their investment and cannot afford the real estate without it.

Renting out your home when you are not using it is a great strategy, but how do you pick the right properties to make that work? We have all heard horror stories about people who buy a home and instead of it being a dream, it becomes a nightmare. Trying to rent a home from a distance can be challenging and when it gets bad, it gets really bad.
So how do you overcome this and reach rental nirvana?
We Need to Know How the Rental Market Works First. There has been huge change in the rental market in the last few years, but before we get to that change, we should understand how the rental market worked before the change.
Ten years ago, if you had a home to rent in the Latin Tropics, you had a few strategies you could employ.

One, start your own website and hope people could find it and book rentals directly. Two, find a property management company to rent your house for you. Three, list your home on a few limited websites and hope people came across your listing.
Of these three options, a local property management company was the most effective because it provided a person on the ground to manage the home in person. Property management companies were their own platform, their business was attracting renters to their offices through the Internet or word of mouth. If they were good and they liked your home, you could sign up with them and get decent rents while you were out of town.

The problem with this was that like any company that involves humans, it was subject to human nature. And human nature in the tropics is generally not the most ambitious type of human nature.

What this meant was the homes that rented most were the easiest for the management company to rent. Easiest in this case meant that it was not up some dirt road 30 minutes away from their office. Easiest meant quick to get to, quick to drop off rental guests, and easy to get to clean after the guests leave. Unfortunately this left many beautiful homes at a disadvantage if they weren’t in the realm the management companies deemed convenient.

If you consider this for a minute, this meant that rental values were determined by convenience, specifically the convenience of the property management company. Property management companies dictated value with their business model.
I remember noticing this over and over as Park and I would visit towns and discuss the rental market. Property management companies would focus heavily on renting properties near their office and workforce. Many of them would turn down amazing homes because they were too far away. What we picked up on was the amazing home farther away was not worth less if it were sold on the market, but it was worth less to the rental market as defined by property management companies.

This Model Meant There Was Direct Correlation Between Proximity and Exposure. If a property was not getting exposure, it had no chance of being rented, but that was the way it worked. At that time, if I was looking for a rental, one of my highest priorities was looking for a place that property management companies would service.

Of course many buyers didn’t know this and they would come down and get wowed by a view or some other cool tropical feature that was not in a central location. The buyer would proceed to build, but when and if they decided to rent, they were stuck unless they were in the area that property management companies focused on.

Thanks to Airbnb and social media, this is changing quickly.
On Airbnb their millions of listings and the consumer can decide what they want based on whatever criteria they have at the time.

A Fundamental Change Will Forever Change Real Estate Investing. If the consumer has the power to choose which house they want based on pictures on Instagram or the Airbnb platform, they will choose rental experiences that fit their own tropical dreams.

The consumer is no longer limited by what a property management company is offering or challenged by finding websites with homes to rent. Of course Airbnb took renting a home farther and actually made looking for a rental home sexy. It is simple to look worldwide and just scroll through, look at pictures, and choose the experience you want.
What this means for you the investor/buyer is that the definition of valuable rental property has changed from convenience to experience. Experiences are the new focal point of good rental property.

Does that mean convenience is out the window? Of course not, it just means that experience is the new metric that matters most. Convenient properties with great experiences will thrive.
So what does experience mean?

It is the definition of what it will be like for the renter to be exposed to everything a home has to offer. Getting there, being in the home, enjoying what the home has to offer, access to other activities, etc. is all part of the experience.

Understanding what the experience will be like for the renter of your real estate is the new way to think about investing. It also means understanding what experience people are looking for so you can provide it for them better than the competition.
In this new market boring homes will suffer, tree houses will thrive, and property that allows for unique experiences will have an advantage in the rental market.

With Airbnb, all the information is there on the site; you can see where it is, what is around it, and you can often find out what type of neighborhood it is in. All this information provides the renter with knowledge that they can use to craft their dream vacation. Given the choice between two similarly priced homes and one of the choices looks like a normal home from Oklahoma and the other is a colonial home that is hundreds of years old, what do you think they will choose?

If the renter has transportation, they certainly are going to drive the extra 10 minutes to get to a home with a waterfall, or on a private beach, instead of opting for the closer tract home with neighbors on all four sides. This is the difference now and it opens up all sorts of possibilities for you the buyer/investor.
Convenience is never going to go out of style, but the best experiences within the convenient locations will now destroy the convenient ho-hum houses.

Interesting Experiences Will Drive the Rental Market. In the Latin Tropics the experience most people are looking for is to get away from their routine daily lives; this can be for a week or forever. In turn, the best investments will cater to these needs and provide exactly what the people want.

I am responding to this change by creating communities that will provide noteworthy experiences for potential buyers and renters. From architecture to views, I spend most of my time in acquisition phase, determining the experience and how it will compete with other experiences.

If you are starting from scratch as we did on our island project or we are doing now in Nosara, Costa Rica, it makes a lot of sense to design the experience to cater to the needs of the market. To take that a step farther, you might as well choose land that will provide the most interesting experiences.

Our logic is, if we make it interesting not only will our buyers be happy, but they will be able to rent their homes at a premium because of the experience our communities provide.
Interesting experiences now rule the rental market and they come in many shapes and sizes. From a view of a river, to a home by a surfing beach, to a faraway jungle retreat with hiking trails, the experience is the key and what you should focus on when buying anything in the Latin Tropics.

This type of consideration will not only solidify your investment, but it will give you a leg up on the competition when and if you decide to rent or sell your home.